Use The Following To Answer Questions 1–10 Show Your Work
Use The Following To Answer Questions 1 10show Your Workmegafram
Given the provided balance sheet and income statement of Megaframe Computer Company as of December 31, 2003, we are tasked with calculating several financial ratios and metrics using the data. These calculations include return on assets (ROA) via the DuPont method, average collection period, times interest earned, quick ratio, current ratio, debt to asset ratio, total asset turnover, after-tax profit margin, return on equity (ROE), and receivable turnover. All calculations will be shown step-by-step, based on the financial data provided.
Paper For Above instruction
1. Return on Assets (ROA) using DuPont Method
ROA can be calculated using the DuPont formula:
ROA = (Net Income / Sales) × (Sales / Total Assets)
Alternatively, it can also be expressed as:
ROA = Net Income / Total Assets
Using the direct method:
Net Income = $100,800
Total Assets = $410,000
ROA = $100,800 / $410,000 ≈ 0.246 or 24.6%
2. Average Collection Period
The average collection period measures how many days it takes for the firm to collect its receivables. It is calculated as:
Average Collection Period = (Accounts Receivable / Credit Sales) × 365
Accounts Receivable = $60,000
Credit Sales = $720,000
Average Collection Period = ($60,000 / $720,000) × 365 ≈ 0.0833 × 365 ≈ 30.4 days
3. Times Interest Earned (Interest Coverage Ratio)
Times interest earned = Operating Income / Interest Expense
Operating Income = $160,000
Interest Expense = $16,000
Times Interest Earned = $160,000 / $16,000 = 10
4. Megaframe's Quick Ratio
The quick ratio is calculated as:
Quick Ratio = (Current Assets - Inventory) / Current Liabilities
Current Assets = Cash + Accounts Receivable + Inventory = $40,000 + $60,000 + $90,000 = $190,000
Current Liabilities = Accounts Payable + Accrued Expenses = $60,000 + $40,000 = $100,000
Quick Ratio = ($190,000 - $90,000) / $100,000 = $100,000 / $100,000 = 1.0
5. Megaframe's Current Ratio
The current ratio is:
Current Ratio = Current Assets / Current Liabilities
Using the same current assets and liabilities as above:
Current Ratio = $190,000 / $100,000 = 1.9
6. Debt to Asset Ratio
The debt to asset ratio measures the proportion of assets financed by debt:
Debt to Asset Ratio = Total Liabilities / Total Assets
Total Liabilities = Accounts Payable + Accrued Expenses + Long-term Debt = $60,000 + $40,000 + $130,000 = $230,000
Debt to Asset Ratio = $230,000 / $410,000 ≈ 0.561 or 56.1%
7. Total Asset Turnover
This ratio measures how efficiently the firm uses its assets to generate sales:
Total Asset Turnover = Sales / Total Assets
Sales = $720,000
Total Assets = $410,000
Total Asset Turnover = $720,000 / $410,000 ≈ 1.76
8. After-Tax Profit Margin
The profit margin after tax is:
After-Tax Profit Margin = Net Income / Sales
Net Income = $100,800
Sales = $720,000
Profit Margin = $100,800 / $720,000 ≈ 0.14 or 14%
9. Return on Equity (ROE)
ROE is calculated as:
ROE = Net Income / Shareholders' Equity
Shareholders' Equity = Common Stock + Paid-In Capital + Retained Earnings = $60,000 + $20,000 + $100,000 = $180,000
ROE = $100,800 / $180,000 ≈ 0.56 or 56%
10. Receivable Turnover
Receivable Turnover = Credit Sales / Accounts Receivable
Receivable Turnover = $720,000 / $60,000 = 12
Summary
- Return on Assets (ROA): approximately 24.6%
- Average Collection Period: approximately 30.4 days
- Times Interest Earned: 10 times
- Quick Ratio: 1.0
- Current Ratio: 1.9
- Debt to Asset Ratio: approximately 56.1%
- Total Asset Turnover: approximately 1.76
- After-Tax Profit Margin: approximately 14%
- Return on Equity: approximately 56%
- Receivable Turnover: 12 times
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